3 ms·
> Interestingly that means you can trade an option with me and we can both make money. Can you explain this? Maybe I just need an example to understand how thi
by bugzz 6y ago
> Interestingly that means you can trade an option with me and we can both make money.
Can you explain this? Maybe I just need an example to understand how this works
- lordnacho 6y agoI buy the option at strike 100 from you, and hedge it. Underlying goes up, I sell some, it then goes down, I buy some, I've enough made money on the hedge to cover your premium. Price goes back to 100. You did nothing in the meantime, so you collected the premium on the expired option. Note this system isn't closed, we have not accounted for where the money came from. The market makers in the underlying are out the amount of the hedge gains.